Contrary to the popular belief, estate planning isn’t reserved for the rich and famous. You don’t have to acquire significant wealth to plan how it will be shared among your beneficiaries once you’re gone. The process involves common assets such as land, houses, jewelry, cash, and investments.
What’s the Importance of Estate Planning?
The AARP reports that only 40% of American adults have a written will. Although older people take this obligation seriously, a majority of Gen Xers and Millennials don’t. You stand to gain the following benefits if you incorporate estate planning into your long-term financial strategy:
1). Reduced Estate Taxes
State inheritance and federal estate taxes can quickly pile up if you don’t hire an estate planner. The process helps you transfer assets to beneficiaries in the most tax-efficient way possible. If you’re married, you can set up an AB trust and enjoy double the federal estate tax exemption.
There are various other estate planning methods that both individuals and spouses can utilize. A living trust is one that you set up while still alive, while a testamentary trust follows the terms of your will.
If it’s a revocable living trust, you may amend its terms whenever you want. Except on rare occasions, once you create and fund an irrevocable trust, its terms are legally binding forever.
2). Protection for Your Beneficiaries
Proper estate planning protects two main types of beneficiaries. The first is minors whose interests are taken care of until they’re old enough to inherit your wealth formally. Every state has laws outlining the appointment of a conservator to manage their financial needs until they turn 18 or 21.
It’s also necessary to protect adult beneficiaries from making poor financial decisions. These could be a result of influence from reckless friends, manipulative spouses, and poor judgment. In such situations, you can specify the exact terms under which they’ll gain access to the inheritance.
3). A Smoother Transition
You probably know a family that’s in a vicious fight for control of a deceased member’s fortune. It’s not uncommon for some beneficiaries to think the distribution of wealth doesn’t favor them. This situation might lead to costly court battles and the disintegration of a family that was once united.
An estate plan determines the role of each beneficiary if you’re no longer able to mentally and physically handle your affairs. It also gives you ample time to make customized arrangements for each child.
They include future medical and educational plans, as well as the needs of children from more than one spouse. Instead of dividing wealth equally, you may do so depending on what you feel each child deserves.
4). Avoiding Probate
This process is one of the biggest reasons for conducting estate planning. Other than authenticating a deceased person’s will, probate calculates the value of their assets.
It also settles any bills and taxes you might have accrued, then shares what remains among your beneficiaries. Probate can turn into a long and messy procedure, so it’s advisable to avoid it altogether.
5). Family Wealth Protection
Because you’ve worked so hard for your wealth, you naturally want it to benefit your descendants for the longest time. Estate planning protects it by creating legal entities that are harder to challenge through malicious lawsuits and fraudulent schemes.
It allows you to teach your children the value of managing their future inheritance for the sake of their beneficiaries. It’s also a smart way of legacy planning. You can decide how you want the society to remember you by specifying the kind of philanthropic activities your trust will support long after you’re gone.